Beyond Ethanol

In 2007, ethanol fuel production rose more than 34% in the United States, reaching a record-high of 6.5 billion barrels. Industry groups expect similar growth rates for this year. The ethanol industry should savor the time, however--this could be as good as it gets.

A handful of small companies, including Pasadena, Calif.-based start-up Gevo, are scrambling to commercialize second-generation biofuels such as butanol that they believe will be cheap and clean enough to put ethanol out of business. These new fuels are even designed to be produced by the same refineries that are cranking out ethanol now.

"If we want to get off petroleum, we're going to have to accept that bio-based liquid fuels are the only way to do it," said Gevo Chief Executive Pat Gruber, who holds a doctorate degree in biochemistry. "Once we've accepted that, the question we should be asking is 'how do we make those fuels better?'"

Gevo is betting that butanol and isobutanol are the best near-term substitutes for ethanol. Although several companies--including industrial powerhouses
BP
and
DuPont
--are commercializing butanol, only Gevo is developing isobutanol. The company received $10 million in new funding from Richard Branson's Virgin Fuels group, which it plans to use to open a pilot plant in June. Gruber expects to be producing between 25 and 50 million gallons annually within two years-- and believes Gevo will be able to scale up production very quickly.

"Because we intend to collaborate with and retrofit an ethanol producer, our capital cost will be low and our timeline will be fast," he says.

Gevo got its start with help from funding by venture capitalist and
Sun Microsystems
co-founder Vinod Khosla and Richard Branson of Virgin Air, who together founded the firm in 2005 with biofuels pioneer Frances Arnold. Arnold teaches chemical engineering and biochemistry at California Institute of Technology.

Gruber earned his spurs at Cargill, and later helped found a Cargill joint venture company, NatureWorks, that makes biopolymers from renewable resources. As chief technology officer for NatureWorks, Gruber helped develop and commercialized cutting-edge materials, like biodegradable plastics and high-performance synthetic fibers, from renewable resources. He joined Gevo in mid-2007.

Gruber approaches the challenges of bringing better biofuels to market the way soldiers are trained to approach enemy-held hills: Start at the top and work down to the bottom one step at a time. "Innovation starts with a vision for solving a problem in the marketplace," said Gruber. "In our case, we want to make a renewable-resource-based fuel that has a higher energy content, smaller environmental footprint and lower vapor pressure and can be used as a blend feedstock. Isobutanol fits that vision."

In December 2007, Gevo acquired an exclusive license to a genetically-modified strain of the E. coli bacteria developed by James Liao, a chemical engineering professor at the University of California, Los Angeles. The bacteria converts sugar into isobutanol.

"We already have a bug that we believe in," said Gruber. "It's an organism that eats sugar and produces isobutanol."

Gevo, which has 40 employees, is now developing the technology and the production processes needed to do commercial scale manufacturing of isobutanol.

In the laboratory, isobutanol's characteristics look promising: Gruber estimates that a gallon of isobutanol requires less energy to produce and yields nearly 50% more energy for end users than a gallon of ethanol.

"There are several more 'bangs for your buck,'" asserts Gruber.

Since isobutanol does not mix with water, it can be transported through existing pipelines, which means it has modest distribution costs. In addition, it does not need to be blended with gasoline to be burned by existing automobile engines.

Taking advantage of the existing fuel infrastructure in the U.S. is the backbone of Gevo's strategy for bringing second-generation biofuels to market, Gruber says. Energy sources incompatible with the current infrastructure would require major capital investments to achieve any meaningful penetration of the market.

"An ethanol pipeline from Iowa to New York would cost about $3 billion," says Gruber. "We already have pipelines all over this country, so we need resources that are compatible with existing infrastructure. We designed a technology at Gevo that will do that."

Although Gruber believes that isobutanol can be produced cheaper than ethanol, it is still a pricey fuel, and will only be price-competitive with gasoline when gas prices are high--probably something above $70 a barrel, he says.

Surging commodity prices could also derail isobutanol and Gevo. Like ethanol, isobutanol relies on fermentable sugars as raw materials; that makes Gevo dependent on crops like corn and sorghum. As a result, high grain prices could easily blunt Gevo's competitive edge.

Although isobutanol has a smaller environmental footprint than ethanol, it's unclear how much better it fares on at least one key metric: water usage. If an ethanol facility aims to produce 50 million gallons of ethanol a year, they would use at least 150 million gallons of water in the process. Multiply that by hundreds of facilities, and the environmental benefits of ethanol get diluted. Gevo claims isobutanol production requires less water than ethanol production, but won't specify by how much.

Ultimately, Gruber believes isobutanol and butanol are only first steps toward developing a rich portfolio of biofuels.

"We have a vision of the future that we want to achieve," said Gruber. "The question is, how do we start walking down the path [of] learning, adjusting and changing, while [also] being consistent, focused and relentless."